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Like many, I’m crushed by student loan debt. For a few years I struggled to find work and worked a few jobs paycheck to paycheck. Now, my student loans are more than $60K and, although I now have a steady job and family, feel kneecapped by them. My monthly take-home is now $4,500 but we’re a single income household and I have so many other expenses. What are my best options? Do I consolidate? Or do I just accept that I’ll be dragging them around for the rest of my days? – Lucas, New York
For better or worse, you’re part of a big club. Student loan debt, which in the U.S. now totals $1.5 trillion (yes, that’s trillion with a “t”), has become a massive weight on recent grads. So it makes sense that you’d want to consider your options.
If you have multiple federal loans, consolidating them into one definitely helps simplify your life. But it doesn’t lower your interest rate. In fact, the way lenders calculate your new finance charges is by taking the weighted average of your existing loans and rounding it up the nearest 1/8 of a percent. So if your weighted average is 5.8 percent, your new loan would charge 5.875 percent.
I got in touch with a couple of experts at Student Loan Hero, who suggested some other options that can potentially lower your monthly payment. One route, per Student Loan Hero’s Rebecca Safier, is to choose an income-driven repayment plan, like the Income-Based and Pay As You Earn plans. They adjust your monthly payments based on your salary and family size, which provides relief for a lot of borrowers.
“These plans also extend your repayment terms to 20 or 25 years, and you’ll get the rest forgiven if you still have a balance at the end of your term,” says Safier. “Although you’ll pay more interest over the years, an income-driven plan could allow you to keep up with your other expenses and avoid student loan default.”
You might also consider refinancing with a private lender, suggests Student Loan Hero’s Elyssa Kirkham. Borrowers with stable income and a good credit score can often get a lower rate this way. Plus, you can extend the length of time over which you pay it back.
“Stretching out your repayment period will lower your monthly student loan payments and give you a little more room in your budget,” she says. “One caveat, however: it will also mean increasing the total principal and interest repaid, and staying in debt a little longer.”
Refinancing has some other drawbacks, too. By doing so, you forgo the numerous repayment plans at your disposal with a federal loan, and not every private lender will let you go into forbearance if you lose your job or experience any other economic hardship. What’s more, you can’t participate in the Public Service Loan Forgiveness program, which is a nice perk for folks employed by the government or at a tax-exempt non-profit.
There’s a trade-off between risk and reward with any of these approaches, so you’ll want to do your homework before making a decision. But, fortunately, you do have options. Good luck!
My wife and I are expecting our first child in a couple months, and the added responsibility has convinced me to take out a term life insurance policy. How much coverage do I need? My wife is planning to stay home with our little one, at least until they go to school. – Alan, Eden Prairie, MN
Thanks for the question, Alan. I’m sure you’ll sleep a lot easier knowing that your family will be protected should the unthinkable happen.
You’ll sometimes hear that the amount of coverage you need is roughly 10 times your salary, at least if you’re a breadwinner in your household. I think certain financial rules of thumb can be helpful, but this particular guideline seems pretty useless to me.
A life insurance policy really needs to take into account the specifics of your situation. As a starting point, you need to add up the big expenses your spouse – or your children’s legal guardian – will have to cover if you pass away. These include:
- Childcare costs
- Education expenses, including private school tuition (if applicable) and future college costs
- Outstanding debts, including student loans and car loans
- Final expenses, like your funeral costs and medical bills
- Income replacement to help cover rent/mortgage payments, food and other routine outlays
From there, you can deduct any assets you’d leave behind, including savings accounts, taxable investment accounts and 529 college savings plans.
Obviously, a lot hinges on your spouse’s earning potential once your child is old enough to attend school. Say you’re planning to buy a policy with a 20-year term, which would expire roughly half-way through your son or daughter’s college career.
You may need to cover 100 percent of your family’s living expenses for years 1-5. But if she can make decent income once your child reaches kindergarten, you only need enough of a death benefit to supplement her income for the remainder of the policy. Term insurance is usually pretty affordable for young, healthy adults. A 30-year-old non-smoking male, for instance, can get a 20-year term policy worth $500,000 for around $25 a month, assuming they have a good medical history.
Ideally, you’d want a policy that covers all your family’s needs if you’re no longer there to provide for them. But the reality is, something is better than nothing. If all you can truly afford is $10 a month, that’s the policy you should get.